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"An Independent Law Firm Offering A New Practice Model of Boutique Focus and Efficiency with the Experience of Large Multistate and International Firm

Practice."

Dennis O'Dea


insolvency

insights


 

 

 

 

"When Insolvency changes the deal, it is no longer business as usual"

              Dennis O'Dea

The SFS Law Group offers advice, planning programs, and legal representation to clients attuned to the new realities in dealing with insolvency risk and bankruptcy.  In addition to active representation of our clients in bankruptcy cases, we assist clients with pre-bankruptcy planning and protective structures to limit the impact of the bankruptcy of key stakeholders and business partners.


Bankruptcy Counsel To Debtors in Reorganization and Liquidation Cases.

   The SFS Law Group has represented numerous and varied clients as debtors in bankruptcy cases.  When properly executed, a bankruptcy case can provide opportunities to preserve underlying values that could be lost to owners and junior creditors.  Often, the need to protect a client from overreaching secured creditors makes bankruptcy an essential response and provides time and opportunity to restructure and reorganize.


The World has Changed and So has Bankruptcy and Restructuring Practice

The national and international reach of insolvency laws and proceedings often lead to unexpected and surprising changes in the terms of agreements and impose new legal relationships between financially distressed companies and their customers, suppliers and other commercial interests.  A company facing insolvency must respond to administrative or judicial proceedings that will redefine its business relationships with its customers, vendors, and alliance or trading partners in ways that were unforeseen or unaddressed in the past. When a key supplier, affiliate or customer confronts insolvency and financial distress, its business partners and stakeholders must understand that the way they do business must change.

Following the dramatic collapse of some of the premier financial and industrial companies in the country, the realization that bankruptcy is just another tool in the hands of managers and planners has made many companies question their own vulnerability to those failures.  General Motors, Chrysler, Lehman Brothers  and other institutions are indicative of the vulnerability of all businesses in the current economic climate.


The Challenge of Troubled Affiliates

An historically successful and optimistic management team that is not attuned to the dramatic change in the treatment of many normal and effective business practices caused by the insolvency of their company or affiliates whose activities they control may find themselves losing control of their businesses or facing new litigation risks.

The most common surprises that unprepared clients have expressed include the following:

Cash Management Practices can be challenged by competing creditor groups of subsidiaries and affiliates. It has become commonplace for creditor groups to claim that a particular subsidiary of affiliate has had its cash or assets sacrificed to support affiliates experiencing losses, operating with inadequate capital or carrying liabilities beyond their ability to pay. Officers and directors of troubled affiliates may encounter claims that they breached fiduciary duties to the affiliate if they engaged in transactions that put the affiliate's assets at risk to support other companies. 

The failure to limit the liability of strong solvent related companies from the business risk and losses of affiliates may not be apparent until it is too late. What a successful company may view as good brand identity and product identification may be a joint venture or guarantee obligation on the part of the entire corporate group when a business segment fails.

Intercompany accounting the shows loans and payments due to affiliates that later become insolvent or unable to support continued operations may create unexpected hard dollar obligations to the insolvent affiliate. The most common risk of unplanned insolvency or creditor litigation is the loss of control over the affiliate as creditors or a trustee cause the affiliate to pursue claims against its parent and other affiliates.

The "Deepening Insolvency" doctrine seeks to impose liability upon those who control a business and keep it in operation for reasons of their own while its financial distress and insolvency worsens.  A parent providing just enough liquidity and cash to keep an essential manufacturing operation in a failing subsidiary operating long enough to complete a key project for the corporate group or arrange to move the work to another source is rational behavior that may trigger a "deepening insolvency" claim from unpaid creditors. Though the death of the "Deepening Insolvency" doctrine has been announced for many years, it continues in various forms and constructions to raise material liability risks.

 

 

 

 

 

 

 

 

 

 

 

 

 

 


The Challenge of Distress In the Supply Chain

Even familiar trading and business environments such as the United Kingdom have developed unfamiliar insolvency practices such as the "solvent scheme" in which solvent companies may escape payment of their debts and secure US recognition of the proceeding under the new Chapter 15 of the US Bankruptcy Code.


A company that depends upon reliable supply chain services, multi-jurisdictional operations and business dealings in other states and nations, must adopt a coherent, unified and structured approach to the insolvency risks of its critical vendors, customers, business partners and its own subsidiaries and venture partners.

The SFS Law Group provides Insolvency Response Planning that enables a client to communicate, implement and refine its response to insolvency risk.  An Insolvency Response PLan is a key business planning tool in the new environment where even General Motors will use bankruptcy to shed unwanted claims, business operations, and obligations.

The SFS Law Group offers its clients the analytical tools, planning assistance and representation they will need to deal with the new realities in the global market.  For companies whose own financial condition demands restructuring, the firm offers planning and representation that brings the full range of solutions and reorganization tools available to preserve an enterprise, recognize the interests of its stakeholders including its owners, creditors, suppliers and customers, and pursue continuity in its business life despite insolvency risk and conflict among its stakeholders.

 

 

 

 

 

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